Background: The mental health of carers is an important proximate factor in the causal web linking housing conditions to child health, as well as being important in its own right. Improved understanding of the nature of the relationships between housing conditions, carer mental health and child health outcomes is therefore important for informing the development of housing programs. This paper examines the relationship between the mental health of the carers of young children, housing conditions, and other key factors in the socio-physical environment. Methods: This analysis is part of a broader prospective cohort study of children living in Aboriginal communities in the Northern Territory (NT) of Australia at the time of major new community housing programs. Carer’s mental health was assessed using two validated scales: the Affect Balance scale and the Brief Screen for Depression. The quality of housing infrastructure was assessed through detailed surveys. Secondary explanatory variables included a range of socio-environmental factors, including validated measures of stressful life events. Hierarchical regression modelling was used to assess associations between outcome and explanatory variables at baseline, and associations between change in housing conditions and change in outcomes between baseline and follow-up. Results: There was no clear or consistent evidence of a causal relationship between the functional state of household infrastructure and the mental health of carers of young children. The strongest and most consistent associations with carer mental health were the measures of negative life events, with a dose–response relationship, and adjusted odds ratio of over 6 for carers in the highest stress exposure category at baseline, and consistent associations in the follow up analysis. Conclusions: The findings highlight the need for housing programs to be supported by social, behavioral and community-wide environmental programs if potential health gains are to be more fully realized, and for rigorous evaluation of such programs for the purpose of informing future housing initiatives.